There is growing agreement that hydrogen has to play an import role in the energy transition. According to the latest EU climate strategy (see my earlier blog), we need to produce about 45 million tonnes of hydrogen in 2050. This hydrogen will partly be used directly, and partly be converted into gaseous fuels. If we would want to produce all this from green electricity, we would require well over 300 GW of electrolyser capacity in the European Union in 2050 . However, this cannot be built overnight. If we want to have all this available by 2050, we need to start the scaling-up process now.
One thing I want to table in this blog: hydrogen production is not cheap. Nowadays, production of green hydrogen, based on electricity from renewable sources, costs more than 100 € per MWh. The good news is: these costs are expected to decrease. In a recent study, energy consultancy Navigant projects that, by 2050, prices will be 40 – 60 €/MWh for hydrogen produced in the EU . This range is valid for both blue  and green hydrogen, and it doesn’t matter much whether green hydrogen is produced from solar energy in Spain or from wind energy on the North Sea. For production in North Africa, prices will be lower, around 30 €/MWh, but if we want to use that hydrogen in Europe, transportation costs need to be added. The IEA, in its recent report  on hydrogen, sees long-term production costs for green hydrogen below 50 €/MWh in selected areas, and production costs from 50 – 75 €/MWh for many areas in the world. In a paper in Nature Energy, Glenk and Reichelstein calculate the optimum value for the costs of hydrogen to be 75 €/MWh in 2030 . Most optimistic about the costs of hydrogen is market analyst BloombergNEF : a range of 38 – 78 US€/MWh is given for 2030 and 22 – 27 US€/MWh is projected for 2050, about half the value given by Navigant.
BloombergNEF announces its findings with an optimistic disclaimer: “Hydrogen’s plunging price boosts role as climate solution”. Glenk and Reichelstein also claim that hydrogen is currently not yet competitive for industrial-scale supply, but “this is projected to change within a decade”. This all seems to hide the bad news: Natural gas is the main competitor of large-scale application of hydrogen and it is still much cheaper than all the numbers quoted above. Current wholesale prices in Europe are fluctuating between 10 and 18 €/MWh. Prices in the US are well below 10 €/MWh and the other competitor, coal, is even cheaper.
Of course, there are niche applications where hydrogen has a premium value compared to natural gas. These are, for example, the use as industrial hydrogen feedstock and the use in fuel cells for transportation. However, the first is already largely covered with conventional steam reforming, and the second is in an infancy phase for the time being.
Could carbon pricing bridge the price gap? Not in the short term. The price of CO2 allowances in the EU Emissions Trading System is currently about 25 € per tonne; this adds 5 €/MWh to the price of natural gas. Carbon prices of more than 100 € per tonne of CO2 would be needed to make hydrogen competitive with natural gas in 2030.
To put it briefly: if we want to make hydrogen big – and I think we should – there is no other option than embarking on a long-term trajectory to provide financial incentives, until 2030 and maybe even up to 2050. This seems long, but let’s face it: for wind energy and solar photovoltaic energy we also have a history of 20 – 30 years of financial incentives behind us, and we are not there yet.
Fortunately, by supporting wind and solar, we have a long track record of a variety of instruments to support the upscaling of these sources, including:
- Feed-in tariffs
- Obligations (or renewable portfolio standards).
If we really want to make large scale use of hydrogen in 2050, we cannot wait another 10 years before we start to scale up. We already need to start applying these instruments in the coming years. My suggestion would be: try the hydrogen auction. It provides more certainty to the project developers than an obligation – and generates more competition in the market than feed-in tariffs. The latter is important, as there is a lot to gain by bringing the productions costs of hydrogen down. And maybe we will then be surprised and already have competitive hydrogen available in 2030.
 Assumptions for these calculations are the following. In the EU strategy, 3.2 EJ of hydrogen is needed and 1.9 EJ of so-called E-gas. If we assume that E-gas is produced out of hydrogen with 80% conversion efficiency, we need a total of 5.6 EJ of hydrogen, which is about 45 milion tonnes. This can be produced by 324 GW of electrolyser input capacity, with a conversion efficiency of 80% and running for 6000 hours per year.
 W. Terlouw, D. Peters, J. van Tilburg, M. Schimmel, T. Berg, J. Cihlar, G. Ur Rehman Mir, M. Spöttle, M. Staats, M. Buseman, A. Villar Lejaretta, M. Schenkel, I. van der Hoorn, C. Wassmer, E. Kamensek, T. Fichter, K. van der Leun, K. Blok: Gas for climate – The optimal role for gas in a net-zero emissions energy system, Navigant, Utrecht, Netherlands, 2019.
 Colour coding: green hydrogen = produced from green electricity; blue hydrogen = produced from natural gas with carbon-capture-and-storage (CCS); grey hydrogen = produced from natural gas without CCS.
 The future of hydrogen – Seizing today’s opportunities, International Energy Agency, Paris, France, 2019.
 G. Glenk, S. Reichelstein: Economics of converting renewable power to hydrogen, Nature Energy 4 (2019) pp. 216-222 (paywall).
 W. Mathis, J. Thornhill: Hydrogen’s Plunging Price Boosts Role as Climate Solution, BloombergNEF, 2019. Hydrogen prices are given in US$, they are converted to € with a conversion rate of 0.9 €/US$.